SA government one step closer to setting up its first state-owned bank
The Department of Telecommunications and Postal Services has gazetted a notice for transferring the enterprise of Postbank from the South African Post Office to the newly incorporated South African Postbank Company.
The date of transfer has been pegged at 1 April 2019.
This is a vital step in Postbank becoming a fully-fledged banking operation in South Africa, with the Financial Matters Amendment Bill – recently adopted by Parliament – paving the way for the group to get a banking licence and proceed to compete with other South African banks.
Currently, Postbank operates under the South African Post Office, functioning through several exemptions from the country’s Banking Act, which allows it to receive deposits and provide basic services.
However, it has been government’s plan since 2010 to fully incorporate Postbank into its own entity – pending the awarding of a banking licence from the Reserve Bank.
Financial Matters Amendment Bill
The Financial Matters Amendment Bill was adopted by Parliament on 14 March 2019 – and once signed into law, will shake up the entire financial sector in the country.
While the bill has been pushed through with the aim of allowing Postbank to get a licence, the terms of the bill are broad enough to allow any state entity to start the process to become a bank.
Like Postbank, state-owned companies currently need to obtain numerous exemptions in order to perform only some of the functions of a bank.
The adopted amendments to the Banks Act would remove the need for these exemptions and would allow entities such as the Postbank and the Land Bank to register and operate as fully operational banks, in competition with the private sector.
This aspect of the amendment has been criticised by opposition parties, which tried to stage walkouts and stay-aways to prevent the bill from being adopted by South Africa’s fifth Parliament.
R7 billion mistake?
It’s not only opposition parties who have sounded the alarm bells over the amendment bill.
In a presentation to the Standing Committee of Finance in February, National Treasury itself warned that a state-owned bank could be a costly mistake.
Treasury pointed to a number of recent banking failures – including the failures of African Bank and VBS Mutual Bank – and said that this shows that a banking licence should not be handed out lightly.
It also warned of previous issues with state-owned banks, highlighting that the South African Post Office used depositors’ funds to finance postal operational losses in the late 1990s.
Treasury added that the traditional rationale for introducing a state bank relates to addressing market failures, i.e. the state supplying services that privately-owned banks may be unable or unwilling to supply.
However, in a market where failures do not exist, introducing state banks is harder to justify, it said.
“The ownership of banks by the state represents a huge contingent liability on the shareholder (in this case ultimately the fiscus). Currently, the contingent liability is circa R7 billion,” it said.
Treasury said that financial inclusion is often cited as the key reason for the establishment of state-owned retail banks.
“However, South Africa has made progress in improving retail financial inclusion, with 90% of South African adults using some form of financial service and of which less than 1% is attributable to the Postbank,” it said.
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